Why the Klarna IPO Is a High-Risk Bet for Retail Investors

The September 2025 initial public offering (IPO) of Klarna, the Swedish buy-now-pay-later (BNPL) giant, has been hailed as a landmark event for fintech. Priced at $40 per share—well above its $35–$37 range—the IPO valued the company at $15.1 billion, a stark rebound from its 2022 valuation of $6.7 billion but still a shadow of its 2021 peak of $45.6 billion Klarna IPO pricing details^[1]. For retail investors, however, the IPO raises critical questions about financial prudence and valuation realism. While Klarna's market leadership in BNPL and aggressive expansion into digital banking are compelling, its financial instability, regulatory vulnerabilities, and unproven path to profitability make this IPO a high-risk proposition.

Financial Instability: Losses Amid Growth

Klarna's financials tell a story of uneven progress. In Q2 2025, the company reported $823 million in revenue and an adjusted profit of $29 million, a modest improvement from its $33 million pre-tax profit in 2024 Q2 2025 financial results^[2]. However, this veneer of progress masks deeper issues. For the first half of 2025, Klarna posted a $152 million net loss, a significant deterioration from the $31 million loss in the same period in 2024 H1 2025 financial performance^[3]. The losses stem from one-time charges, such as lease restructuring costs, and rising operational expenses, which hit 109% of revenue in H1 2025 Operating expenses analysis^[4].

Moreover, Klarna's balance sheet is precarious. Total liabilities stand at $16.67 billion, dwarfing its equity value of $2.5 billion Balance sheet data^[5]. While the company generated $587 million in operating cash flow in 2024 2024 operating cash flow^[6], its recent net losses and high debt levels raise concerns about long-term sustainability. By contrast, Affirm, Klarna's primary competitor, reported a net income of $52 million on $3.2 billion in revenue over the same period Affirm’s financial performance^[7]. Affirm's business model, which derives 50% of revenue from high-margin interest income, contrasts sharply with Klarna's reliance on transaction and service fees (76% of revenue) Revenue stream comparison^[8].

Regulatory Risks: A Looming Overhead

The BNPL sector is under intense regulatory scrutiny, and Klarna is not immune. In Sweden, the company was fined SEK 500 million ($45 million) for compliance failures, including inadequate anti-money laundering controls and flawed customer verification processes Regulatory fine details^[9]. Globally, regulators such as the U.S. Consumer Financial Protection Bureau (CFPB) and the UK's Financial Conduct Authority (FCA) are tightening rules to curb consumer debt and ensure transparency in BNPL terms Global regulatory trends^[10].

Klarna's ambitions to expand into traditional banking—bolstered by its Swedish banking license—add further complexity. While this move could diversify revenue streams, it also exposes the company to stricter capital adequacy requirements and liquidity risks Banking license risks^[11]. The U.S. Securities and Exchange Commission's (SEC) recent launch of a cross-border task force to investigate securities law violations further heightens regulatory uncertainty SEC task force announcement^[12]. For retail investors, these risks translate into potential operational disruptions and higher compliance costs that could erode margins.

Valuation Realism: A Question of Multiples

Klarna's IPO valuation of $15.1 billion implies a price-to-revenue multiple of approximately 5x, based on its $2.8 billion in 2024 revenue Valuation multiple calculation^[13]. This is significantly lower than the 8.8x average for public fintech companies and Affirm's own 8.9x multiple Fintech industry multiples^[14]. While a lower multiple might suggest undervaluation, it also reflects skepticism about Klarna's ability to replicate Affirm's profitability.

Affirm's revenue growth—nearly 40% year-over-year—far outpaces Klarna's 24% growth Revenue growth comparison^[15]. Additionally, Affirm's interest income, which carries higher margins, accounts for 50% of its revenue, compared to Klarna's 24% Interest income analysis^[16]. For Klarna to justify its valuation, it must demonstrate that its pivot to banking and AI-driven cost efficiencies can meaningfully improve margins. Yet, its recent financial performance—marked by rising expenses and inconsistent profitability—casts doubt on this trajectory.

Strategic Uncertainties: Can Klarna Scale Beyond BNPL?

Klarna's long-term success hinges on its ability to evolve beyond BNPL. The company has introduced debit cards, cashback rewards, and other banking services, aiming to compete with traditional financial institutions Banking service expansion^[17]. However, these initiatives are nascent and untested at scale. Meanwhile, Affirm has secured partnerships with established players like FIS and Adyen, while Klarna's U.S. expansion relies heavily on its exclusive deal with Walmart U.S. market strategy^[18].

The BNPL market itself is maturing, with slowing growth rates and increased competition. PayPal, Afterpay, and traditional banks are all vying for market share, forcing Klarna to invest heavily in customer acquisition and merchant partnerships. These costs could strain profitability, particularly if economic conditions worsen or consumer demand for BNPL contracts.

Conclusion: A High-Risk Proposition

Klarna's IPO has generated excitement, but retail investors must approach it with caution. The company's financial instability, regulatory risks, and unproven path to profitability make it a high-risk bet. While its valuation appears modest compared to peers, this reflects underlying concerns about its business model. For investors seeking stability, the IPO's risks—ranging from regulatory penalties to margin pressures—outweigh its potential rewards.